COVID-19 State aid measures

The European Commission ("Commission") has announced a package of measures to deal with the economic impact of COVID-19, including more flexibility and a specific Temporary Framework for the adoption of targeted State aid measures. The additional rules and flexibility will make it easier for Member States to adopt liquidity support and compensation measures to help businesses cope with the financial consequences of the COVID-19 outbreak.

The additional flexibility for State aid measures comprise:

1. Compensation in exceptional circumstances

• The qualification of COVID-19 as an exceptional circumstance allows for measures to help compensate losses.
• The compensation must be strictly limited to damage suffered following the COVID-19 outbreak. It cannot be granted for companies' pre-existing financial difficulties.
• An exception from the 'one time, last time' principle will be applied. This principle normally prevents companies in financial difficulties from receiving repeated restructuring support within a period of less than ten years.

2. New Temporary Framework on possible remedies for serious disturbance of the economy

• Because the COVID-19 outbreak is affecting the entire economy of Member States, measures to remedy a serious disturbance across the EU economy may be taken.
• The European Commission will put a Temporary Framework in place, comparable to the framework that applied in the 2009 financial crisis. The proposed new Temporary Framework that has been sent for consultation to the Member States contains the following support measures to stabilise the economy:
  • Aid in the form of direct grants or tax advantages: Member States would be able to set up schemes to grant up to €500,000 to a company to address its urgent liquidity needs.
  • Aid in the form of subsidised guarantees on bank loans: Member States can grant State guarantees or set up guarantee schemes supporting bank loans taken out by companies. These would have subsidised premiums, with reductions on the estimated market rate for annual premiums for new guarantees for SMEs and non-SMEs. There are some limits foreseen on the maximum loan amount, which are based on the operating needs of the companies (established on the basis of wage bills or liquidity needs). The guarantees may relate to both investment and working capital loans.
  • Aid in the form of subsidised interest rates: Member States can enable public and private loans to companies with subsidised interest rates. These loans must be granted at an interest rate, which is at least equal to the base rate that applied on 1 January 2020 plus the credit risk premium corresponding to the risk profile of the recipient, with different rates for SMEs and non-SMEs. The base rate is fixed in order to provide more certainty on the financing conditions in this volatile context. As with the possibility to provide subsidised guarantees, there are some limits regarding the maximum loan amount, which are based on the operating needs of the companies (established on the basis of the wage bills or liquidity needs). The loans may relate to both investment and working capital needs.
  • Direct aid to bank customers via banks: if Member States decide to channel aid to the real economy via banks, this is direct aid to the banks' customers, not to the banks themselves. The Temporary Framework provides guidance on how to minimise any undue residual aid to banks and ensure that the aid is passed on, to the largest extent possible, to the final beneficiaries in the form of higher volumes of financing, riskier portfolios, lower collateral requirements, lower guarantee premiums or lower interest rates.

3. Procedural flexibility

• The Commission has set up a dedicated COVID-19 contact point to assist authorities.
• The Commission is committed to assessing the compensation measures as soon as possible. This was first demonstrated when the Commission approved a compensation scheme for large-scale events companies in Denmark within 24 hours of receiving the Danish notification.
• The Commission will publish on its website templates to facilitate the design of support measures;

The additional flexibility and the Temporary Framework comes on top of the compensation and liquidity measures that are allowed under the existing State aid rules:

• The existing State aid rules allow wage subsidies, suspending payments of corporate tax, VAT or social contributions, and rescue and restructuring aid.
• Measures that apply to all businesses, like deferred payment of tax and VAT for all sectors, do not involve State aid. The same applies to loans or state guarantees granted against market rates and compensation measures not exceeding the de-minimis threshold per undertaking (i.e. EUR 200,000 over a period of three years for most businesses).
• The Block exempted measures, such as specific investment or operating aid, may only be applied if the undertaking involved does not qualify as an undertaking in difficulty.

Conclusion

• In addition to the possibilities for support measures under the existing State aid rules, the introduction of additional flexibility and the new Temporary Framework allows for targeted measures to address the financial and economic consequences of the COVID-19 crisis.
• Despite the exceptional circumstances, support measures must comply with the State aid rules, including the obligation to obtain prior approval from the Commission.
• If measures fail to comply with State aid rules, they can still be considered unlawful, in which case the aid is recovered with interest from the companies.
• Complying with State aid rules is therefore fundamental for companies benefitting from COVID-19 support measures because companies bear the financial risk of this compliance.

The Houthoff State aid team is available to answer all you questions on the COVID-19 support measures. The team works closely together with the Houthoff Litigation team, the Insolvency & Restructuring team and the Tax team.